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Monday 23.07.2018 | Name days: Magda, Magone, Mērija

With central banks keeping mum, talks of RE bubble deemed unfounded

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU

Linas Jegelevičius for the BNN

The Baltics‘ real estate (RE) market remains bubbly and robust, but the exuberance the market shows seems worrisome to some. Yet the majority points to the Baltic central banks. Unless they send a message of distress, followed with the tightening of lending, there’s nothing to worry about.

A total of 368 million euros were pumped into commercial property acquisitions in the Baltic countries in the year‘s first half, according to Ober-Haus, one of the Baltics‘ leading real estate players.

At the mark, the acquisitions were 18 per cent down, year-on-year. The total of 18 investment transactions concluded in the first half-year in Lithuania, Latvia and Estonia encompassed the purchase of over 312,000 sqm of commercial property, including modern offices, retail, warehousing and industrial buildings and premises, at least of 1.5 million euro in value, according to the real estate’s company report.

«Lithuania shared the major portion of the investment in the first half of the year, 198 million euro or 54 per cent of the overall number. Real estate sales Estonia in the first half of 2017 amassed 91 million euro or 25 per cent of the overall investment. Meanwhile, Latvia saw the smallest share of investment over the period totalling 79 million euro,» Saulius Vagonis, Ober-Haus Head of Valuation & Analysis, said.

The largest investment transactions in Lithuania during the period were the acquisition of the shares in Baltic Retail Properties and the acquisition of the Vertas and Pentagon office buildings in Vilnius.

Among the noteworthy purchases is namely the latter – the Swedish investment company Eastnine (former East Capital Explorer) signed the deal in June 2017.

The other stand-out is the purchase of an almost completed office building in Ozas Park from the ICOR Group by the Finnish property investment and management company Technopolis.

The transaction involved the purchase of both the office building and the parcel of land next to the building. The total transaction value is about 32 million euro.

The largest investment transactions in Estonia involved the sale of three retail centres managed by Kesko to Baltic Retail Properties, the acquisition of the shares in Baltic Retail Properties mentioned above, and the sale of the Prisma Shopping Centre in the city of Narva. The shopping centre was purchased by the French property management company CORUM for 16.7 million euro from EfTEN Kinnisvarafond AS.

According to the Ober-Haus representative, the major portion of RE investment in Latvia accounted for the sale of 4 retail centres managed by Kesko to Baltic Retail Properties and subsequent sale of the shares of Baltic Retail Properties to CPA®:17 – Global.

According to Ober-Haus, of the total 368 million euro invested in Lithuania, Latvia and Estonia, 69 per cent went to the retail property sector. A total of 25 per cent investment was made in offices and the remaining smallest portion, around 6 per cent, was traditionally invested in warehousing facilities. The largest transaction in the warehousing property segment was the purchase of 21,000 sqm logistics centre in Vievis with Rimi as the anchor tenant by the Estonian investment company United Partners Property from Sirin Development.

According to Ober-Haus, over the past 17 years, investors from 15 different countries have invested in the developed commercial property in Lithuania and this number has not changed since 2015.

Meanwhile, some foreign banks increasingly point out to what may evolve sooner or later into a housing bubble.

Swiss bank UBS, for example, has reported about the rising risk of the kind in some major cities across the world. According to the bank’s drawn Global Real Estate Bubble Index, the bubble risk has grown in Toronto, Stockholm, Munich, Vancouver, Sydney, London and Hong Kong. In contrast, housing is fairly valued in Milan, New York, Singapore and Boston.

Commenting the findings, Raimondas Reginis, senior market analyst of Ober-Haus, noted that a big interest in housing, both from foreign investors and local market participants, positive expectations about future housing prices, and historically low mortgage costs rapidly increase housing prices.

«In some cases, they have already reached or are in excess of the price levels of a decade ago. The demand for buy-to-let property and slow supply of new housing significantly increase the gap between the big cities and the remaining regions of the countries, and at the same time reduce the possibilities of the residents of major cities buying residential property,» the expert said.

Meanwhile in Lithuania, similar trends have been observed since 2010: a growing gap between the housing prices in Vilnius and other regions of the country, demand for buy-to-let property, record low mortgage interest rates, and largely moderate or positive expectations about future housing prices.

«These factors determine housing price growth in the country, particularly in the capital city. However, our most active regions are protected against greater price changes by sufficient supply of new housing and the real implementation of macroprudential policy. Although over the past seven years housing prices in Vilnius increased by 25 per cent on average, even faster wage growth keeps the housing affordability levels record high,» Reginis said.

According to a report by Ober-Haus, today an inhabitant of Vilnius can purchase 5.9 sqm in a medium class apartment for his average net annual salary. This indicator is nearly twice as high as that in 2006–2007, since both nominal and real prices are far behind the price level recorded 10 years ago.

«However, with faster growth of housing prices, the Bank of Lithuania may introduce stricter lending criteria for mortgages in an attempt to cool the housing market. The rise of «frozen» interest rates could also be effective in naturally controlling both the Lithuanian real estate market and the markets of the regions at risk of a bubble,» Reginis emphasised.

For Eimutis Židanavicius, a real estate broker in the Lithuanian Baltic resort of Palanga, actions by Central Bank of Lithuania and the commercial banks are to be watched out first.

«Unless banks tighten mortgage conditions, there is nothing to worry about. However, it is very unlikely,» he told BNN.

Yet the builders, according to him, will have to slow down their construction pace due to high emigration.

«There might be not enough people soon to buy any real estate,» the RE agent inferred.

in Lithuania, noted that flat sales are more robust in the lower-price segment.

In his words, in Palanga, young families seek flats in the range of 70,000 euros.

«The other major group of buyers are rich Lithuanians who obtain their second home in Palanga,» he said.

Lasta Maslinskienė, a managing partner at Capital, a real estate company, also downplayed the concerns of the market’s overheating.

«Flat sales are good and that many buyers are willing to buy not fully completed flats demonstrates that the market is robust,» she told BNN. «I don’t see any signs of a real estate market bubble, however the market is saturated. Especially in capital city Vilnius,» the broker underscored.

According to her, flat lease prices have a tendency to edge down due to the abundance of offered rentals.

«A couple of years ago, many people would buy up houses expecting to earn from the lease. But with the lease prices on a lower end, the buying can be affected, too,» Maslinskienė emphasised.

Things in bucolic Lithuania are a lot grimmer, however.

«The supply in Alytus is 10 time higher than the demand. If you were to look through the ads, the pages are full of ads placed by those who want to sell flats. It tells all,» Žilvinas Rėklaitis, a RE broker at JSC Maribustas, real estate company in southern town of Alytus, told BNN.

According to him, only those who are born after the restoration of independence in 1990 show interest in buying flats and medium-size houses in the once industrial hub.

«Ten years ago, our expats were also very eager to obtain real estate in their hometown Alytus. Not these days, as they simply do not see any prospects here anymore. The size of population of Alytus has decreased from 80000 at the peak to ca 35000 inhabitants now,» Rėklaitis accentuated.

There are no major real estate developments in the city, he added.


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